Signing up for a credit card may be the last thing you want to do after filing for bankruptcy, but it’s important to begin rebuilding your credit rating as soon as possible so you can do things like apply for loans or buy a home. Post-bankruptcy, you can apply for both secured and unsecured cards.
Understanding Bankruptcy and Credit Risk
Declaring bankruptcy does not automatically make you a bad credit risk. Credit card companies know that you can only file for Chapter 7 bankruptcy once every eight years, which means that even if you run up a balance on your new card, you’ll eventually have to pay that debt. Only 8 percent of people who declare bankruptcy have done so before, making it statistically unlikely that you’ll file for bankruptcy again.
Secured Credit Cards
Secured credit cards are often your best bet for getting credit immediately following a bankruptcy, because they’re designed for people with bad credit. Here’s how they work: You deposit money with the credit card company, such as $200 or $500. In turn, they’ll give you a credit card with that amount as the credit limit. Every time you use the card, the credit card company will report your activity to the major credit bureaus, just like with a traditional credit card. After a period of making regular payments, you may be eligible to increase your credit limit over your deposit amount or change to an unsecured credit card.
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Unsecured Credit Cards
An unsecured credit card is what you might call a “regular” credit card. You don’t have to put down a deposit to secure your debt, and your credit limit is based on both your credit score and the issuer’s estimate of what you will be able to repay. You can apply for an unsecured credit card as soon as your bankruptcy is discharged. Many people are approved between six and 24 months after bankruptcy, although every case is different.
Although your bankruptcy will certainly be a factor in deciding whether you’re approved, creditors consider other factors, too, including your income, how long you have been with your current employer and what your credit history has been like since the bankruptcy — including your history with a secured credit card.
Things To Consider
Not all credit cards have the same fees or interest rates. Read the terms of the card and compare the interest rate and fees with other cards you may be eligible for before applying. If the purpose of getting a card is to build your credit, make sure you pay on time every month and don’t borrow more than you can realistically pay back immediately. You may be eligible to apply for a card with better terms within a year or two after you’ve established a track record of timely payments.